Monday, December 31, 2012

Getting Started with CSR - part 1

The new companies bill has been in discussion for quite some time now -- it is looking at bringing significant changes to the existing companies act of 1956.  One new aspect of this bill is the mandate on CSR being implemented by companies.

At this time (Dec 2012) the bill has been approved by the Lok Sabha and awaits approval of Rajya Sabha.  Its only a question of a few months now that the bill will get moving and become an Act.  However, with the debates and discussions that have been happening on many fronts including the Minister of state interacting with the Industry -- CSR mandate is a given and can only get more demanding with time.

The highlights are that if a company has Rs 5cr profits in a year then they need to get into a structured CSR program that applies at least 2% of the average net profit from the last three years (more detail below as reference).  While there is enough flexibility in the current approach for companies falling under the ambit to not do much about it, however, I think that the lack of any serious resistance from corporates on this aspect of the bill is a great indicator that Indian Industry is now mature and ready to apply CSR in day to day life.

A large number of Indian Corporates and MNCs in India already have an established CSR arm, with policies and action happening on the ground.  The only piece they will need to review is whether the spend on CSR is matching the 2% rule or not.

For the companies that are now looking at starting off their CSR projects/committees, I have views that I will share in the next part of the blog.  Let me close this one with just thoughts on how much Rs 1mill - which is 2% of Rs 50mill (5cr) can impact the society:
1. Skilling for employability - 200 youth a year
2. Education for 100 students in the disability sector
3. Healthcare for one community - with a daily availability of good doc for the whole year
4. Creation and maintenance of 10 hole-in-the-wall kiosks - impacting up to 3000 students every year

These are only some ways ... many more can be chosen from ...

The key elements on CSR in the Company Bill are:
1. Every company having net worth of rupees five hundred crore or more, or
turnover  of rupees one thousand crore or more or a net profit  of rupees five crore or more
during any financial year shall constitute a Corporate Social Responsibility Committee of the
Board consisting of three or more directors, out of which  at least one director shall be  an
independent director.
2. The CSR committee to ensure application of 2% of the average of last three years profit of the company towards CSR.
3. The committee monitors implementation as well and gets the spend, the activity and the outcomes reported in the annual report.
4.  The suggested areas for the CSR activities include but are not limited to:

(i) eradicating extreme hunger and poverty;

(ii) promotion of education;
(iii) promoting gender equality and empowering women;
(iv) reducing child mortality and improving maternal health;
(v) combating human immunodeficiency virus, acquired immune deficiency
syndrome, malaria and other diseases;
(vi) ensuring environmental sustainability;
(vii) employment enhancing vocational skills;
(viii) social business projects;
(ix) contribution to the Prime Minister's National Relief Fund or any other fund set up by the Central Government or the State Governments for socio-economic development and relief and funds for the welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women; and
(x) such other matters as may be prescribed.